Don’t Miss the 2019 Tax Changes!

Written by Gwyneth James MBA CPA, CGA  Senior Partner

If you have been a little busy lately managing work, kids, or other responsibilities you may have missed a few changes to tax- and employment-related rates for 2019. Here’s a quick recap:

  • The maximum rate per kilometer that an employee or shareholder is allowed to claim for business travel increased from 55 to 58 cents (for the first 5,000 KMs, thereafter it’s 52¢)
  • The employee and employer CPP contribution rates for 2019 will be 5.1% – up from 4.95% in 2018, and contributions will top out at $2,748.90
  • Employee EI contribution rates for 2019 have decreased to 1.62% to a maximum of $860.22 (for employers the rate is 1.4x that: 2.268% to a max of $1,204.31
  • The maximum TFSA contribution for 2019 increased to $6,000 from $5,500
  • You can now claim the expense of a service animal under the medical expense tax credit
  • If you’re a low income or fixed income individual whose income remains the same year-to-year, you’re now able to call a dedicated automated phone line at Canada Revenue Agency to file your tax return. (You should have received an invitation letter with full instructions if you’re eligible.)
  • A new federal Climate Action Incentive refundable tax credit will appear on your 2018 personal tax return. Its value will vary depending on your marital status and number of children. A 10% supplement will be added for residents of small and rural communities (the City of Peterborough does not qualify for the supplement, but County residents will)

Stay tuned for further changes that may result from the 2019 Ontario Budget. They are encouraging people to provide their ideas and feedback through online and in-person consultations until February 9th.

Your December To Do List!

Written by Gwyneth James MBA CPA, CGA  Senior Partner

Okay, I know…accounting is the farthest thing from your mind right now, but hear me out. There are just a few items that you need to take care of while you sip your glass of egg nog.

  • If you have a business, don’t forget to take an odometer reading on December 31st.
  • If your business is incorporated, this month is the time to pay yourself a little extra – either as a bonus or as a dividend – to ensure it is added to your T4 or T5 for 2018.
  • As an individual, December is donation time if you want to shore up that tax credit for 2018.
  • Another item that is based on the calendar year is your TFSA contribution, but that rolls over if it’s unused so don’t worry. And you have until March 1st to contribute to your RRSP.
  • If you have non-registered investments that you’d like to realize a gain or loss on, make sure you sell that stock or mutual fund before December 27th.

That’s it! See, not that hard.

Happy Holidays!

Who Should Have a TFSA?

Written by:  Gwyneth James MBA CPA, CGA

The Tax Free Saving Account (TFSA) has been around now for ten years and is pretty popular with good reason – everyone should have one.

There is no tax deduction for contributions to a TFSA. The ‘tax free’ relates to any investment earned by the TFSA. It is tax free even when withdrawn.

For people just entering the workforce the TFSA is the ideal place for your emergency fund. Even $100 a month will provide a nice $2400 emergency fund within two years and get you in to the habit of saving. Then when an emergency happens (like the furnace conks out or the car transmission goes – not the emergency trip to Casino Rama or the 30% off shoe sale) you have the funds to cover it and the $100 a month starts to rebuild it right away.

The TFSA is also the place for everyone to save for those big purchases like new furniture, a vacation or home renovation. Again move money into your TFSA monthly and save for that big purchase.

If you are fortunate enough to have no debt and have maximized your RRSPs then the TFSA can be used to accumulate additional savings for retirement.

If you are retired and have any taxable investment income those funds should be inside a TFSA to reduce the tax bite.

However, be mindful of the maximum contribution limits. The CRA establishes contribution limits each year and they vary each year. It must be clear that no matter how many TFSA’s you have, the contribution limit applies to the combined total of all TFSA’s held by an individual and there are penalties if you exceed your contribution limit.

If you do not have a TFSA, you should – and start using it. If you do have one, good! Now make sure it is put to the best use!

Tax Planning for Retirees

Personal Accounting: a retired coupleWritten by:  Gwyneth James MBA CPA, CGA  Senior Partner

Fall always feels like a time of new beginnings and some folks take time as the days cool to consider their year-end tax planning. Retirees should examine their year-to-date income and consider whether they should take more or less funds from their registered savings accounts (RRSPs and RRIFs).

A few basic reminders:

  1. In the calendar year a taxpayer has their 71st birthday, RRSPs must be converted into a RRIF (or annuity) and an amount withdrawn each year. They can also be collapsed and paid in a lump sum, although this would only make sense if the balance is not too large.
  2. An RRSP can be converted into a RRIF or annuity at any time, but this forces some defined amount to be included in taxable income each year.
  3. Only defined types of pension income qualify for pension splitting. For example, income from company pension plans qualifies at any age, but RRIFs do not until age 65.

Some retirees opt to start withdrawing RRSPs earlier than age 71 which spreads the taxable income over a longer period of time. This can be beneficial in a year where income is expected to be lower than in the future, for example if OAS, CPP or pensions have not yet started. If the funds are not required for living expenses, transfer into a TFSA for later use.

Other retirees convert some of their RRSPs to RRIFs at age 65 to take advantage of the ability to pension split. Pension splitting allows one spouse to transfer up to 50% of their pension income to the other for tax calculation purposes only. This can result in much lower tax owing if that one spouse is in a higher tax bracket than the other. The transferee spouse also qualifies for the $2,000 pension income tax credit.

Each year you elect to do a pension split, complete and sign form T1032 and keep it on file in case CRA asks to see it. Couples who have not remembered to split their pension income can go back and adjust the past three years’ tax returns.

Tax-Deductible Interest – What is eligible & what is not!

Written by:  Gwyneth James MBA CPA, CGA  Senior Partner

There are many examples in income tax where the interest paid on a loan can be deducted from taxable income: mortgage interest on a rental property, loan interest on a business line of credit, and credit card interest on business credit cards, to name a few. You can also borrow money to put into investments and deduct the interest charges, but there are some important rules that must be followed in this case.

The key to deducting interest expense is that the money borrowed must have been invested in something that will generate taxable income. This includes income from a business, rental property, or investment, but only non-registered investments that pay dividends or interest. The interest paid on an RRSP loan (Registered Retirement Savings Plan) or a loan for investing in a TFSA (Tax-Free Savings Account) is NOT deductible.

In addition, if the borrowed money is invested in shares that do not pay dividends – you believe their value will go up and create a capital gain, but the company is unlikely to issue dividends in the future – you cannot deduct the loan interest.

You must keep good records to be able to prove that the proceeds from a loan were invested in the income-producing item. It is permissible to take out a mortgage against your home, for example, and use the money to buy a rental property, but you must be able to show the paper trail.

It is even permissible to continue to deduct the interest paid after an investment has become worthless or is sold for a loss. This is small consolation so invest wisely!

TFSA’s and Estates

Many Canadians have taken advantage of the Tax-Free Savings Accounts (TFSA) since their advent in 2009, but as a quick recap: they don’t reduce your taxable income when you invest in them; only the income earned on these investments is sheltered from tax. As a result, withdrawals from a TFSA are not taxable; they are not income.

When a person passes away their investments are all deemed to have been sold. In the case of a TFSA this does not result in any significant income tax, however that value may be included in the calculation of the Estate Administration Tax (historically and still commonly called Probate Fees) which is imposed by the Ontario government on the value of all the property that belonged to the deceased at the time of his or her death.

Having a will does not prevent Probate Fees being applied on TFSAs. In order to achieve that, you must name the beneficiary in the TFSA account itself.

There are two types of TFSA beneficiaries: Successor Holders, which are spouses or common-law partners, and Beneficiaries, which can be anyone. The Successor Holders are able to take over the ownership of the TFSA with no limits, no probate fees and no income tax. There are more restrictions on regular Beneficiaries, but at least probate fees won’t be payable. In the case of a non-spouse Beneficiary, any growth in the value of the TFSA after the date of death will be taxable to them and they will need room in their own TFSA to maintain the tax-free status of the funds.

Make sure you contact your financial institution or advisor to verify or change your TFSA designations.

Gwyneth James MBA CPA, CGA

1-888-511-2791
info@codyandjames.ca